A flood of contributions to donor-advised funds pushed assets of the charitable accounts to a new high of nearly $54-billion in 2013, according to a new report.
But the study also found that those accounts distributed a slightly smaller share of assets to charities last year than in 2012.
Donors poured more than $17-billion into the accounts, an increase of 24 percent, according to the report.
The surge of contributions, along with healthy growth in the stock market, helped assets in the accounts grow by nearly 20 percent.
That surge is part of a trend, as donor-advised funds have grown increasingly popular with wealthy donors.
Contributions to donor-advised funds reflected 5.2 percent of all charitable gifts, according to the study, edging up from the 4.3 percent the trust reported in last year’s survey.
Using a donor-advised fund, a contributor can take an immediate charitable tax deduction but is not subject to a deadline for parceling out money from the funds and to charities.
A big reason why donors increased their giving in 2013 was a debate over tax policy in late 2012 that left some people worried the charitable deduction might be limited in the future, according to Eileen Heisman, president of the National Philanthropic Trust, which manages donor-advised funds and commissioned the new study of 1,012 organizations.
Although lawmakers did not limit deductions, Ms. Heisman says many donors feared they would lose an incentive to give and so they rushed to make donations.
For fund managers operating on a calendar year, those added gifts were captured in 2012. For organizations and funds operating on a fiscal year, the surge in gifts occurred in 2013.
Gadgets Fuel Growth
In 2013, there were 217,367 donor-advised funds, an increase of 5.7 percent over the previous year. During that time, the number of private foundations totaled 84,350, an increase of 7.3 percent, according to the Foundation Center.
Although donor-advised fund assets are dwarfed by the amount of money controlled by foundations, the wealth of advised funds is growing at a quicker clip. Last year, foundation assets grew 5.7 percent, to $615-billion.
The growth of donor-advised funds has been helped not only by the tax debate and the robust stock market, according to Ms. Heisman.
The increase in contributions was especially steep at funds managed by national charities and commercial organizations, including those affiliated with financial-industry giants like Schwab and Fidelity.
Their marketing efforts, attention in the press, and the ease of starting a fund online—aided, for instance, by a widget called DAF Direct—has also attracted donors.
"Americans like tools and gadgets that make their lives easier," she says. "Donor-advised funds are an extension of that. They’re the iPhone of the philanthropic world."
Share of Dollars Donated
The report found that the share of money that donors channeled to charities from donor-advised funds dropped from 22.5 percent to 21.5 percent.
The rate was calculated using a method the trust says follows one used by the Foundation Center. It divided the amount made in grants in 2013 by the total assets in donor-advised-fund accounts at the end of 2012, rather than using the asset number for the current year.
The result is that the payout rate looks much more generous than that of foundations, which by law must spend at least 5 percent of their assets on grants each year, based on their wealth the previous year, says Alan Cantor, a fundraising and nonprofit-management consultant.
Critics of donor-advised funds, like Mr. Cantor, say that foundations typically hew to the 5-percent distribution requirement, but the donor-advised-fund payout rate does not accurately reflect funds that sit dormant.
While many account holders use their funds as temporary holding tanks before donating to what Mr. Cantor calls a "genuine" charity within 18 months, those people inflate the overall payout rate, he says.
"A 20-percent payout rate doesn’t overly impress me," Mr. Cantor says.
Ms. Heisman expects the giving rate to grow next year. The dip was likely due to a sharp increase in contributions and creation of new accounts, and payouts need some time to catch up, she says,
Congress is likely to consider next year a proposal requiring funds to distribute their balances within five years.
More Growth Predicted
While it will be hard to repeat this year’s growth, especially because the charitable deduction does not appear to be in jeopardy right now, Ms. Heisman is confident that contributions to donor-advised funds will grow "in the double-digits" this year, barring a large market slump or late-year economic troubles.
She sees the fact that contributions to community foundations grew by nearly 10 percent in 2013, even though 2012’s tally included some unusually big donations, as a sign that donor-advised funds have broader appeal.
Gifts in 2012 included one of more than a half-billion dollars made to the Silicon Valley Community Foundation by Mark Zuckerberg, a co-founder of Facebook, and an anonymous gift to the Greater Kansas City Community Foundation.
The report also found:
- The average size of a donor-advised account grew by 13.4 percent, to $247,217.
- Total contributions to funds managed by national charities, including those tied to investment firms, soared to $8.7-billion, an increase of 32.7 percent.
- After a year of decline, grants from charities managed by financial institutions and other national funds increased 21.8 percent, to top $4-billion.
- Payout rates at community foundations decreased from 17.1 percent in 2012 to 15.5 percent in 2013.
- Assets in donor-advised-fund accounts managed by community foundations increased by 12.7 percent, to nearly $21-billion.
- The average account size at donor-advised funds managed by community foundations was $332,000.
- Assets at national charities, which include financial-services firms, were nearly $25-billion in 2013, almost double the level they reached three years earlier.